international business CH 9
31) Famous Footwear imports a variety of athletic shoes, work boots, and casual footwear from around the world. Which of the following would most likely provide Famous Footwear with a detailed classification scheme for its imported shoes? A) tariff rate quota B) ad valorem report C) compound tariff report D) harmonized tariff schedule
D
41) Since the 1960s, the United States has maintained an embargo against ________. A) Russia B) China C) North Korea D) Cuba
D
55) Which of the following would most likely be used as a subsidy to entice firms to locate or expand facilities in a particular community? A) quotas B) an embargo C) a granting of corporate citizenship status D) reduced utility rates
D
84) Tariff rate quotas help domestic consumers but hurt domestic producers of the good in question.
FALSE
93) When Japanese products are priced higher in retail stores in the United States than in Japan, this is evidence of dumping.
FALSE
47) Which of the following is an example of a nontariff barrier that restricts access to distribution networks? A) Malaysia's requirement that during prime time at least 40 percent of the songs on the radio be by local artists B) Turkmenistan's requirement that all imports of consumer goods be approved by the State Standards Committee C) China's policy that imported sugar be distributed only by state-owned enterprises D) Canada's requirement that baby food be packaged in 4.5- and 7.5-ounce containers
C
59) A(n) ________ is calculated to offset the advantage an exporter receives from a subsidy. A) compound tariff B) export promotion C) countervailing duty D) substitution tariff
C
32) Any government regulation, policy, or procedure other than a tariff that has the effect of impeding international trade may be labeled a(n) ________. A) nontariff barrier B) ad valorem tariff C) compound tariff D) export restraint
A
34) A ________ is a numerical limit on the quantity of a good that may be imported into a country during some time period. A) quota B) numerical export control C) voluntary export restraint D) regulatory control
A
63) In many cases, tariffs are imposed for the purpose of ________. A) increasing national government revenue B) complying with trade regulations C) increasing foreign trade activity D) promoting consumer safety
A
8) For which industry did Alexander Hamilton propose the infant industry argument? A) manufacturing B) electronics C) merchant marine D) farming
A
99) What is a primary disadvantage of industrial policy?
Answer: Some experts argue that government bureaucrats cannot perfectly identify the right industries to favor under such a policy.
4) The "level playing field" argument is primarily used to justify government policies that ________. A) reduce import tariffs B) restrict foreign competition C) establish regional trade blocs D) manipulate foreign exchange
B
40) A(n) ________ is an absolute ban on the exporting and importing of goods to a particular destination. A) voluntary export restraint B) embargo C) ad valorem tariff D) tariff rate quota
B
51) Which of the following is not an example of regulatory controls as a form of nontariff barrier? A) Country A conducts inspections of all imported luggage and baggage. B) Country B requires foreign firms to obtain licenses before constructing plants. C) Country C requires domestic producers of cosmetics to obtain government product registration. D) Country D offers tourists a separate exchange rate than what is offered to importers.
B
56) A(n) ________ is a geographic area where imported or exported goods receive preferential tariff treatment. A) free trade zone B) foreign trade zone C) fair trade zone D) economic incentive zone
B
6) The ________ proposes that tariffs be imposed on imported manufactured goods to give U.S. firms temporary protection from foreign competition until they can fully establish themselves. A) national defense argument B) infant industry argument C) industrial policy D) strategic trade theory
B
61) ________ can occur when a firm sells its goods in a foreign market at a price below what it charges in its home market. A) Predatory pricing B) Dumping C) Foreign trade duties D) Subsidies
B
64) Country X imposes a low tariff rate for the first 5,000 pounds of rice it imports from Japan and a high tariff rate on all imported rice above this threshold. Country X most likely uses a ________. A) free trade zone B) tariff rate quota C) foreign currency control D) voluntary export restraint
B
57) A foreign trade zone is primarily used by governments to ________. A) protect currency rates B) enforce tariffs and duties C) monitor foreign investments D) spur economic development
D
62) Most critics of unfair trade practice laws are concerned that such laws ________. A) promote globalization B) encourage mercantilism C) fail to protect poor consumers D) serve as protectionist trade barriers
D
50) France's requirement that during prime time at least 40 percent of the songs played on 1700 AM and FM stations must be written or sung by French or Francophone artists is an example of which type of nontariff barrier? A) product and testing standards B) restricted access to distribution networks C) numerical export controls D) public-sector procurement policies E) local-purchase requirements
E
71) Classical theories of trade assume that firms operate in perfectly competitive markets.
TRUE
72) According to strategic trade theory, a national government can make its country better off if it implements trade policies that improve the competitiveness of its firms in oligopolistic industries.
TRUE
76) The South Korean government patterned its economic development strategies after the Japanese model.
TRUE
78) The Clinton administration sought to introduce industrial policy for five emerging technologies.
TRUE
81) Most tariffs imposed by developed countries are ad valorem.
TRUE
85) The harmonized tariff schedule is a detailed classification of imported goods.
TRUE
94) Foreign firms alleged to have dumped goods in the United States must provide comprehensive documentation of their pricing and cost-accounting procedures in English and using the Generally Accepted Accounting Principles (GAAP).
TRUE
95) According to international trade law, countries can implement safeguard clauses to impose temporary tariffs and quotas.
TRUE
73) A country's adoption of strategic trade policies to cover a broad group of industries can actually reduce the country's overall international competitiveness because favoring certain industries inevitably hurts others.
TURE
22) According to public choice analysis, domestic trade policies that affect international business have a tendency to develop from ________. A) political goals B) economic needs C) foreign competition D) corporate litigation
A
112) What is the purpose of Section 201 of the 1974 Trade Act? Who benefits and loses from the enforcement of this law? Provide an example to illustrate your response.
Answer: Section 201 permits the imposition of temporary tariffs, quotas, or other trade barriers by the federal government if the International Trade Commission finds that Americans have been seriously harmed by surging imports. In 2009, President Obama imposed temporary tariffs for three years on tires imported from China after the ITC ruled that American tire producers were harmed by rapid increases in imports, causing them to trim their work forces by 5,000 employees. While the United Steelworkers, who filed the original complaint, were delighted by the President's decision, many American tire wholesalers, who rely on imports to keep their costs down, were not.
118) What are the two different forms of dumping? What factors should be considered when determining whether or not dumping has occurred?
Answer: There are two forms of dumping. When a firm sells its goods in a foreign market at a price below what it charges in its home country, the firm is engaging in a form of dumping known as international price discrimination. The comparison should be made between the prices charged foreign customers and domestic customers at the factory gate; these prices are often difficult to obtain. When a firm sells its goods below cost in the foreign market, the firm is using predatory pricing. Defining costs in this form of dumping is difficult because R&D expenses, marginal costs, and corporate overhead may or may not be relevant.
1) ________ implies that the national government exerts minimal influence on the exporting and importing decisions of private firms and individuals. A) Fair trade B) Free trade C) Managed trade D) Equitable trade
B
13) Strategic trade theory applies best to which industry identified below? A) air transportation B) commercial aircraft construction C) farming D) automobile manufacturing
B
46) Which of the following is an example of a product and testing standards nontariff barrier? A) Malaysia's requirement that during prime time at least 40 percent of the songs on the radio be by local artists B) Brazil's requirement that new pharmaceutical products undergo clinical testing in Brazil C) China's policy that imported sugar be distributed only by state-owned enterprises D) Canada's requirement that organic baby food be manufactured locally
B
48) An example of a public-sector procurement policy non tariff barrier is the ________. A) ATM restrictions in Thailand B) "Buy American" policy in the U.S. C) encryption technology rules in Russia D) foreign exchange requirements in Ethiopia
B
49) Which of the following is an example of a regulatory control nontariff barrier? A) Malaysia's policy that during prime time at least 40 percent of the songs on the radio be by local artists B) Egypt's 15% bidding preference on public contracts C) China's policy that imported sugar be distributed only by state-owned enterprises D) Canada's requirement that baby food be packaged in 4.5- and 7.5-ounce containers
B
53) ________ is/are common in key industries like broadcasting, utilities, air transportation, defense contracting, and financial services. A) Restricted access to distribution networks B) Investment controls C) Public-sector procurement policies D) Quotas
B
15) The government of Country X is encouraging the growth of domestic manufacturing by implementing high barriers to imported goods. Country X is most likely following a strategy of ________. A) strategic trade B) export promotion C) import substitution D) industrial development
C
30) Most tariffs imposed by developed countries are ________. A) transit tariffs B) specific tariffs C) ad valorem tariffs D) compound tariffs
C
39) A(n) ________ is a promise by a country to limit its export of a good to another country to a pre-specified amount or percentage of the affected market. A) tariff rate quota B) export promise C) voluntary export restraint D) embargo
C
42) Local purchase requirements, investment controls, and product and testing standards are all forms of ________. A) numerical export controls B) voluntary export restraints C) nontariff barriers D) embargoes
C
67) Managed trade is another term for free trade.
FALSE
75) Protection for infant industries can only be given during the first five years of the industry's life.
FALSE
77) The United States is an ardent supporter of industrial policy.
FALSE
79) According to public choice analysis, the general public is more willing to work towards defeating unfavorable consumer laws than special-interest groups are willing to work towards the passage of trade laws.
FALSE
80) Tariffs and quotas are more difficult to eliminate than non-tariff barriers.
FALSE
82) A transit tariff is a form of import tariff.
FALSE
66) Free trade implies that government exerts minimal influence on the exporting and importing decisions of private firms and individuals.
TRUE
68) According to the national defense argument, government protection of specific industries may be necessary to ensure a country's self-sufficiency in critical raw materials, machinery, and technology.
TRUE
69) The infant industry argument has been adopted in countries worldwide.
TRUE
70) Strategic trade theory makes different assumptions about the industry environment in which firms operate than do the classical theories.
TRUE
74) Exports generate domestic jobs.
TRUE
14) Which theory specifically addresses the needs of individual industries? A) strategic trade theory B) economic development programs C) industrial policy D) public choice analysis
A
19) Which country listed below followed industrial policy to achieve economic success? A) Japan B) the U.S. C) Canada D) Germany
A
20) What Japanese organization is entrusted with setting industrial policy? A) Ministry of International Trade and Industry B) Industrial Policy Ministry C) Office of Strategic Trade D) Ministry of Industry Development
A
23) A(n) ________ is a tax placed on a good that is traded internationally. A) tariff B) quota C) par value D) import substitute
A
25) Products manufactured in Brazil are transported through Mexico on their way to England. Mexico applies a tariff on the goods. What type of tariff is implemented by Mexico? A) transit tariff B) ad valorem tariff C) export tariff D) compound tariff
A
3) Fair trade is sometimes called ________. A) managed trade B) manipulated trade C) illusory trade D) right trade
A
33) Country X protects its domestic manufacturers from foreign competition by using a variety of nontariff barriers. Which of the following is not one of those nontariff barriers? A) foreign trade zones B) product standards C) regulatory controls D) local purchase requirements
A
35) As a result of trade agreements, many countries have replaced quotas with ________. A) tariff rate quotas B) numerical export controls C) voluntary export restraints D) regulatory controls
A
36) A(n) ________ imposes a low tariff rate on a limited amount of imports of a specified good, but imposes a prohibitively high tariff on the good above that limited amount. A) tariff rate quota B) numerical export control C) voluntary export restraint D) ad valorem tariff
A
45) Public-sector procurement policies are common in Country X. Which of the following is the most likely characteristic of Country X? A) extensive state ownership of industry B) highly educated labor force C) numerous small firms D) minimal tariffs
A
5) The ________ holds that a country must be self-sufficient in critical raw materials, machinery, and technology or it will be vulnerable to foreign threats. A) national defense argument B) infant industry argument C) industrial policy D) strategic trade theory
A
52) ________ make it more difficult for importers of nonessential goods to acquire foreign exchange. A) Currency controls B) Restricted access to distribution networks C) Numerical export controls D) Public-sector procurement policies
A
54) Country X wants to stimulate exports. Which of the following would most likely help Country X achieve this goal? A) subsidies B) currency controls C) investment controls D) quotas
A
58) A ________ refers to any factory located in an FTZ in Mexico. A) maquiladora B) greenfield operation C) keiretsu D) chaebol
A
7) The determination of which industries deserve infant industry protection is often done ________. A) on a political basis B) on an economic basis C) by happenstance D) on an environmental basis
A
9) For five years, Harley-Davidson received tariff protection from Japanese imports to allow the motorcycle firm the opportunity to improve its operations and gain market share. This is an example of the ________. A) maintenance of existing jobs argument B) industrial policy argument C) infant industry argument D) strategic trade theory
A
111) How is a countervailing duty determined?
Answer: A countervailing duty is an ad valorem tariff on an imported good that is imposed by the importing country to counter the impact of foreign subsidies. It is calculated to just offset the advantage the exporter receives from the subsidy.
107) What is a foreign trade zone? Why are FTZs formed?
Answer: A foreign trade zone is a geographic area where imported or exported goods receive preferential tariff treatment. FTZs are used by governments worldwide to spur regional economic development.
117) Explain how a maquiladora operates.
Answer: A maquiladora is a factory located in a foreign trade zone in Mexico, usually along the U.S. border. Maquiladoras import unfinished goods or component parts, further process the goods or parts, and reexport them. No customs duties are levied on the unfinished goods as long as the goods are reexported after further processing in Mexico. Maquiladoras also receive preferential tax and customs treatment for their machinery.
How does a tariff rate quota work?
Answer: A tariff rate quota imposes a low tariff rate on a limited amount of imports for a specific good; above that, there is a prohibitively high tariff rate on the good.
What is a voluntary export restraint? Why would a VER be imposed?
Answer: A voluntary export restraint is a promise by a country to limit its exports of a good to another country. Often this is done to resolve or avoid trade conflicts with an otherwise friendly trade partner.
114) What is the infant industry argument? How did Japan use the infant industry argument to rebuild its economic strength following World War II? What tools did it use?
Answer: According to the infant industry argument, new industries need protection from fierce, foreign competitors until they establish themselves. Japan eliminated tariffs on imports of raw ores and ore concentrates while imposing high tariffs on processed and fabricated metals. Consequently, Japan has developed thriving metal fabrication industries.
Which type of trade policy did Adam Smith support?
Answer: Adam Smith supported the free trade philosophy. He believed that voluntary exchange makes both parties of the transaction better off and allocates resources to their highest valued use.
What types of regulatory controls can governments use to create nontariff barriers?
Answer: Governments can conduct health and safety inspections, enforce environmental regulations, require firms to obtain licenses, and charge taxes and fees for public services.
Why are nonquantitative, nontariff barriers more difficult to eliminate than tariffs and quotas?
Answer: Nontariff barriers can be difficult to eliminate because they are often embedded in bureaucratic procedures and are not quickly changeable.
108) What types of unfair trade practices do organizations like the International Trade Commission focus on?
Answer: Organizations like the International Trade Focus on government subsidies that distort trade and unfair pricing practices.
What arguments are used to justify government intervention in foreign trade? What tools are used to restrict trade?
Answer: Some rationales for governmental intervention focus on the specific needs of an industry (national defense, infant industry, maintenance of existing jobs, and strategic trade arguments), while others focus on the country's overall needs (economic development and industrial policy). Over the centuries, governments have developed a variety of trade barriers. Import tariffs raise revenues for the government as well as help domestically produced goods compete with imported goods. Quotas and VERs place a numerical limitation on the amount of a good that can be imported or exported. Other NTBs may also disadvantage foreign products in the market. These barriers include product and testing standards, restricted access to distribution systems, public procurement policies that favor local firms, local-purchase requirements, regulatory powers, and currency and investment controls.
106) What effect do subsidies have on international trade?
Answer: Subsidies artificially improve a firm's competitiveness in export markets or help domestic firms fight off foreign imports by reducing the cost of doing business.
Why do governments impose tariffs?
Answer: Tariffs have been historically imposed to raise revenue for the national government and to act as trade barriers.
109) What is the Eximbank? What is its purpose?
Answer: The Eximbank, or Export-Import Bank of the United States, provides financing for U.S. exports through direct loans and loan guarantees.
120) Explain the effects of the tariff rate quota on the sugar industry in the United States.
Answer: The U.S. government uses a tariff rate quota to restrict the amount of sugar imported by the United States. This policy benefits domestic sugar producers by creating more need for domestic production and higher prices. Producers of sugar substitutes also benefit as manufacturers of sweetened products use sugar substitutes in place of sugar. Among those who are worse off as a result of the policy are domestic candy manufacturers and soft drink makers who have to pay higher prices for sugar.
110) How does the United States handle complaints of unfair trade?
Answer: The complaints are first investigated by the International Trade Administration which determines whether an unfair trade practice has occurred. If the case is confirmed, the Department of Commerce transfers the case to the U.S. International Trade Commission, an independent government agency. If a majority of the six ITC commissioners decide that U.S. producers have suffered material injury, then the ITC will impose duties on the offending imports to counteract the unfair trade practice.
113) Discuss the two principal issues surrounding the debate on appropriate trade policy. What role does domestic politics frequently play in such debates?
Answer: The first principal issue is whether a national government should intervene to protect the country's domestic firms by taxing foreign goods entering the domestic market or constructing other barriers against imports. The second issue is whether a national government should directly help the country's domestic firms increase their foreign sales through export subsidies, government-to-government negotiations, and guaranteed loan programs. According to public choice analysis, domestic trade policies that affect international business stem not from some grandiose vision of a country's international responsibilities but rather from the mundane interaction of politicians trying to get elected. Savvy international businesspeople recognize these political realities. Often a foreign firm needs to find domestic political allies to run interference for it.
96) What is the primary difference between fair trade and free trade? Which do you think is more appropriate for the U.S.? Why?
Answer: The free trade approach suggests a minimal governmental role while the fair trade approach encourages intervention by the government.
98) What is the national defense argument for protectionism?
Answer: The national defense argument holds that a country must be self-sufficient in critical raw materials, machinery, and technology or else be vulnerable to foreign threats.
115) What is the difference between an ad valorem tariff, specific tariff, and compound tariff? What is a countervailing duty and its purpose?
Answer: The three forms of import tariffs are ad valorem, specific, and compound. The ad valorem tariff is assessed as a percentage of the market value of the imported good. A specific tariff is assessed as a specific dollar amount per unit of weight or other standard measure. A compound tariff has both an ad valorem component and a specific component. A countervailing duty (CVD) is an ad valorem tariff on an imported good that is imposed by the importing country to counter the impact of foreign subsidies. The CVD is calculated to just offset the advantage the exporter obtains from the subsidy. In this way, trade can still be driven by the competitive strengths of individual firms and the laws of comparative advantage, rather than by the level of subsidies that governments offer their firms.
116) What are some of the regulatory controls imposed by governments which constitute non-tariff barriers to trade?
Answer: There are many examples, including health and safety inspections, enforcing environmental regulations, requiring firms to obtain licensing for various aspects of approval or operation, as well as the taxes and/or fee requirements.
119) Why did Japanese auto makers accept the voluntary export restraint program that limited the number of cars that could be exported to the United States in the early 1980s? What role has domestic politics played in Toyota's U.S. strategy?
Answer: Under pressure from the United States in the early 1980s, Japan voluntarily agree to limit its U.S.-bound exports of automobiles. The CEO of Toyota acknowledged that the company wanted to become the world's largest automobile company, but that this goal made it vulnerable to protectionist threats. The company felt that being a good corporate citizen and being accepted in the United States would be important to achieving its goal, and so pledged to start producing two-thirds of the cars sold in North America in North America instead of exporting. Toyota's strategy of siting its production facilities throughout the country means that the company has many political warriors on its side including 11 governors, 22 senators, and 151 members of the House of Representatives .
24) Country X applies a tariff on goods as they leave the country. Country X most likely imposes a(n) ________ tariff. A) transit B) ad valorem C) specific D) export
D
16) ________ suggests that a country should encourage firms to compete in foreign markets by harnessing some advantage the country possesses. A) Strategic trade theory B) Export promotion strategy C) Import substitution strategy D) Import promotion strategy
B
17) ________, once heavily dependent on cocoa, began an industrialization program to protect itself from fluctuations in cocoa prices. A) Austria B) Ghana C) Brazil D) The Hershey Company
B
18) The government of Country X actively manages the national economy by providing subsidies to aerospace firms and automobile manufacturers. Country X most likely engages in ________. A) trade blocs B) industrial policies C) export promotion strategies D) import substitution policies
B
2) Free trade ________. A) is another term for managed trade B) implies that the national government exerts minimal influence on the exporting and importing decisions of private firms C) proposes that national governments should directly help domestic firms by providing export subsidies and tax breaks D) suggests that the national government should actively intervene to ensure that domestic firms' exports receive an equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share in specific industries
B
26) What type of tariff is assessed as a percentage of the market value of the imported good? A) transit tariff B) ad valorem tariff C) specific tariff D) compound tariff
B
27) What type of tariff is assessed as a specific dollar amount per unit of weight or other standard measure? A) ad valorem tariff B) specific tariff C) export tariff D) compound tariff
B
29) Which of the following is an import tariff? A) transit tariff B) ad valorem tariff C) sua sponte tariff D) complex tariff
B
37) The U.S. government has decided to impose a tariff rate quota on sugar imports into the United States. Which of the following would benefit from this decision? A) soft drink producers B) domestic sugar producers C) steel producers D) consumers of sugar products
B
38) The U.S. government has decided to impose a tariff rate quota on sugar imports into the United States. Which of the following would benefit the most from this decision? A) domestic candy producers B) sugar substitute producers C) soft drink producers D) U.S. consumers
B
28) What type of tariff includes both ad valorem components and specific components? A) transit tariff B) harmonized tariff C) export tariff D) compound tariff
D
43) The federal government policy that international air travel purchased with U.S. government funds must occur on U.S. airlines is an example of which type of nontariff barrier? A) restricted access to distribution networks B) numerical export controls C) public-sector procurement policies D) local-purchase requirements
C
44) ________ is a term used to denote 17 different minerals that are critical for the production of high-tech products. A) Tech gems B) Dirty tech C) Rare earths D) Neo-elements
C
60) Which agency initially investigates complaints about unfair trade practices in the United States? A) Overseas Private Investment Corporation B) Federal Trade Commission C) International Trade Administration D) World Trade Organization
C
65) A voluntary export control is most likely used to ________. A) punish political enemies B) appeal to domestic politicians C) avoid trade conflicts with friendly trade partners D) comply with strict product and testing standards
C
10) ________ suggests that a national government can make its country better off if it adopts trade policies that improve the competitiveness of its domestic firms in oligopolistic industries. A) National defense argument B) Infant industry argument C) Maintenance of existing jobs D) Strategic trade theory
D
11) Which country has been particularly successful at nurturing domestic industries through government intervention? A) China B) India C) Germany D) Japan
D
12) Which theory best applies to those industries capable of supporting only a few firms worldwide? A) national defense argument B) industrial policy C) maintenance of existing jobs D) strategic trade theory
D
21) ________ suggest(s) that special interest groups will often dominate the general interest on any given issue because these groups are willing to work for the passage of laws. A) Strategic trade theory B) Economic development programs C) Industrial policy D) Public choice analysis
D
83) Country X charges a tariff of 6 cents per kilogram for imported citrus fruit, so Country X is using a specific tariff.
TRUE
86) Subsidies reduce the cost of doing business.
TRUE
87) A quota is a numerical limit on the quantity of a good that can be imported.
TRUE
88) Brazil has accused the United States of significantly depressing world cotton prices through subsidies paid to U.S. farmers.
TRUE
89) NAFTA provided many of the benefits of Mexico's foreign trade zones to factories throughout Mexico.
TRUE
90) The Export-Import Bank of the United States provides financing for U.S. exports through direct loans and loan guarantees.
TRUE
91) Nations sometimes implement a countervailing duty on imported goods to counter the impact of foreign subsidies.
TRUE
92) Retail prices are irrelevant in determining whether dumping has occurred.
TRUE
